The overall carnage and woe in the chip sector in the first quarter is spreading to the second quarter, and the casualties are starting to add up. Micron Technology was absolutely blasted when it missed, and the AMD warning knocked the stock down at one point Tuesday almost 20%.
A new report from the SunTrust Robinson Humphrey team notes that while the personal computer issues are pretty well figured in, their work indicates that further demand drag in wireless infrastructure and what they call the “broad-based” industrial markets are factoring into weakness. They even think it could spread to the automotive sectors usage, which has been very strong over the past couple of years.
The SunTrust team focused on three specific stocks could have negative price reactions ala Micron, and they also could see downward earnings revisions. Combined with the fact that the companies have not really sold off big and have higher price-to-earnings multiples than some stocks, they could face a swift reaction when they report if the data is negative.
This stock has had a big run and just recently started to roll over. Analog Devices Inc. (NASDAQ: ADI) designs, manufactures and markets analog, mixed-signal and digital signal processing integrated circuits (ICs) for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion into electrical signals.
The company may have been awarded a nice a product slot in the next iPhone, according to some reports, but those revenues may not be reported anytime soon, and Apple has been known to award and then pull big design awards. Overall, Analog Devices has a bright future, the near term is what investors may need to be wary of. The company is expected to report earnings in August.
Analog Devices investors are paid a 2.57% dividend. SunTrust has the stock rated at Neutral, with a $68 price target. The Thomson/First call consensus price target is $67.32. Shares closed Tuesday at $63.38.
Maxim Integrated Products
This company supplies some chips to Samsung for the Galaxy S6. Maxim Integrated Products Inc. (NASDAQ: MXIM) designs, develops, manufactures and markets various linear and mixed-signal ICs worldwide. The company also provides a range of high-frequency process technologies and capabilities for use in custom designs. It primarily serves automotive, communications and data center, computing, consumer and industrial markets.
The stock jumped in May when chatter about a buyout from Avago started to hit the tape. Avago ultimately bought Broadcom in a massive $37 billion deal that should cool that speculation at least for the near term. While Maxim’s current business seems steady, an earnings miss and revisions talked down could take a toll in the near term. The company is expected to report on July 23.
Maxim shareholders are paid a 3.36% dividend. SunTrust rates the stock Neural, with a $33 price target. The consensus is posted at $35.80. Shares closed Tuesday at $33.72.
This is another company that has had a nice run and looks to have rolled over on the chart. Xilinx Inc. (NASDAQ: XLNX) designs and develops programmable devices and associated technologies worldwide. Its programmable devices include ICs in the form of programmable logic devices (PLDs), such as programmable system on chips and three-dimensional ICs; software design tools to program the PLDs; targeted reference designs; printed circuit boards; and intellectual property (IP), which consists of Xilinx and various third-party verification and IP cores.
Again, with a solid portfolio of products, and the distinct possibility of it being considered as a takeover candidate, what the SunTrust team views is on a very short-term basis. That means second-quarter results, which are scheduled to be reported on July 22.
Xilinx shareholders are paid a 2.87% dividend. The SunTrust team rates the stock Neutral with a $44 price target. The consensus target is at $45.04. The shares closed most recently at $43.62.
Again, these are three top-notch companies, and the play for those that own them and want to keep them would be to hedge by either selling short against the box or putting on a costless collar. That would require selling the calls, and taking the proceeds to buy the puts on the stocks. Now if the market takes a huge swift downturn, everything will get sold, these included.